What Hinders Cash Flow at Staffing Agencies?Posted by Factor Funding Co. on January 21, 2016
Cash flow is a concern for most staffing agencies. Certain things that hinder that cash flow are obvious, like waiting for invoices to be paid in 60 to 90 days. However, some things that hinder cash flow are not so obvious. And those less obvious hindrances can kill any agency's cash flow in the long run.
Things that Can Hinder Cash Flows at Your Agency
- Recruiting a deep pool of potential talent. It takes money to attract the quality of people and the number of people you need to keep up with your clients' ongoing needs. You need to advertise on job boards and other places to attract the best talent. That is an ongoing cost that no staffing agency can do without.
- Paying staff a competitive wage. Underpaying your talent will quickly drive away the best people. That means you have to pay wages similar to what the market demands. If you want to upgrade your talent pool, you will also need to increase the wages that you offer. This all costs money that can strain even the strongest cash flows.
- Vetting potential hires. Your reputation lies in the quality of talent you send out to clients. If you let an unqualified person slip through your vetting process, it can do untold damage to your agency's reputation. And that can cost you clients and cause further costly problems.
- Differentiating your agency from your competition. How many staffing agencies in your area are your direct competition? They provide the same talent, in the same niche, to the same clients. You have to make your agency stand out to attract the clients and the best talent. That means advertising your agency and building your brand. And both of those require an ongoing investment in marketing.
- Protecting against legal issues. The world of staffing comes well-stocked with potential legal issues. These problems can range from issues with unqualified staff, to clients who don't pay their bills, to employee immigrant status, to wage and hour classification. With so many potential issues, retaining legal counsel is essential. Plus, there are additional costs for vetting and training staff and dealing with clients.
- The need for speed. Today's world is very fast paced. When high quality talent is on the market, that person does not just have one prospect. He or she has multiple prospective jobs in the works. You need to find that talent and get them in for an interview quickly. Then, you have to put subtle pressure on the client to make a hiring decision, before that talent takes another job. This kind of speed costs money to make it happen.
If any of these sound familiar to your operations, you are not alone. Many of these hinder cash flows at staffing agencies all the time. Fortunately, there are ways to keep cash flowing, even when everything seems to be going the wrong way.
Factoring is an Answer to Cash Flow Problems
You have payroll coming up and you know you don't have the cash to make it. What do you do?
Getting a bank loan is not an easy process. It can take weeks or months to go through the application process, and even then, nothing is guaranteed. And if your agency is brand new, the likelihood of getting a bank loan is next to nil.
Factoring is a way to free up the cash you have tied up in open invoices. It allows you to get between 70 and 90 percent of the value of your unpaid invoices as a cash advance. You can use that money to meet payroll, keep the lights on, or pay the rent. When your clients pay their invoices, you receive the balance minus a small fee for the factor.
The process of factoring starts with selecting a factoring company. Most factors work within a small number of niches. Some specialize in funding for staffing agencies. These factors know who the industry works and can offer you the best terms possible for your particular staffing niche.
Once you have a factor in mind, you will need to go through an application process. The main thing factors want to see is a creditworthy customer base. The factor will not forward you cash against an invoice that goes to a non-creditworthy customer. The risk of the invoice not being paid in a timely fashion is too high. If you pass the application process, you can then start factoring invoices.
The factoring process is pretty quick. You submit the invoices to the factor and usually within 48 hours you have access to the cash you need.
If you find your cash flows are getting tighter and tighter, you need to find a solution. Talking with a factoring agency can be an idea first step.